CFTC Calls for Default Judgment Against Ooki DAO in Ongoing Lawsuit

The U.S. Commodity Futures Trading Commission (CFTC) is asking a federal judge to rule that a decentralized autonomous organization (DAO) violated federal commodities laws after it failed to respond to an ongoing lawsuit.

The CFTC, which sued Ooki DAO last year on charges of running an unregistered crypto futures trading facility and failing to conduct proper know-your-customer checks, argued in a filing Wednesday that the date for the DAO to respond – Jan. 10, 2023 – had come and gone, and said the court should enter a default judgment against the group.

"On December 20, 2022, the Court deemed service on the Ooki DAO of the Complaint and Summons in this action complete as of that date," the filing said. "Pursuant to Rule 12(a)(1)(A)(i), the Ooki DAO’s answer or other responsive pleading to the Complaint was due on or before January 10, 2023. ... The Ooki DAO failed to answer or otherwise defend as instructed by the Summons and as provided by the Rules."

Ooki DAO, a successor to a company called bZeroX, allegedly allowed U.S. persons to trade illicit crypto derivatives products. The CFTC settled charges with bZeroX and its founders, Tom Bean and Kyle Kistner, in September and attempted to sue the entire DAO at the same time. The lawsuit was served by way of a chat bot and a forum message.

Read more: CFTC’s Ooki DAO Action Shatters Illusion of Regulator-Proof Protocol

Various groups of attorneys and companies in the crypto industry pushed back, arguing that a DAO cannot be treated like a person and the CFTC should have to identify the token holders behind Ooki DAO rather than serve the DAO as a whole.

While Judge William Orrick, of the U.S. District Court for the Northern District of California, initially said the CFTC should try and serve at least one token holder, he said in a Dec. 20 ruling that serving Bean and Kistner – who were still, apparently, token holders – met this requirement, despite the previous CFTC settlement and a statement from their attorney saying they had no role in the DAO.

"In this case, requiring the CFTC to serve some individual known Token Holders even after the DAO received actual notice is a belt-and-suspenders procedure to ensure that the due process requirements are met," Orrick wrote. "... The CFTC has utilized all of the information reasonably at its disposal to serve Ooki DAO, and it is clear that Ooki DAO has actual notice. Service was proper and complied with due process requirements."

The judge also pointed to "national media coverage" and the fact there were four friend-of-the-court briefs as evidence that, most likely, Ooki DAO as an entity is aware of the lawsuit against it.

Read more: Interpreting the CFTC’s Lawsuit Against Ooki DAO